Comparative ad creates personal jurisdiction in target's home state

SKEDCO, Inc. v. ARC Prods., LLC, 2013 WL 3965314 (D. Or. July 30, 2013)

SKEDCO, an Oregon corporation, sued its competitor ARC (dba Medsled), a Missouri corporation, alleging false advertising in violation of federal and Oregon law based on ARC’s comparative claims about the parties’ emergency medical rescue equipment in brochures, films, presentations, and online.

The court first found personal jurisdiction in Oregon.  SKEDCO had the burden of establishing personal jurisdiction by making a prima facie showing of facts that support the exercise of jurisdiction over defendant. Here, specific jurisdiction was adequately shown; the elements are (1) purposeful direction, (2) a claim arising out of the defendant’s forum-related activities, and (3) that the exercise of jurisdiction was reasonable; when the first two parts are shown, the burden shifts to the defendant to show unreasonableness.  For purposeful direction, the tort-based effects test applied: “the defendant allegedly must have (1) committed an intentional act, (2) expressly aimed at the forum state, (3) causing harm that the defendant knows is likely to be suffered in the forum state.”

The first part of the effects test was clearly satisfied, since ARC intended to publish ads that targeted SKEDCO and made comparisons.  This conduct was expressly aimed at Oregon because, under the 9^th Circuit’s test, there’s express aiming “when the defendant is alleged to have engaged in wrongful conduct targeted at a plaintiff whom the defendant knows to be a resident of the forum state.” Here, ARC targeted SKEDCO with its comparisons.

ARC argued that it operated an essentially passive website, which wasn’t enough to confer jurisdiction.  But SKEDCO’s claims weren’t just based on ARC’s website, but also in brochures and YouTube videos (why YouTube isn’t “passive” for these purposes is not clear to me).  A passive website in conjunction with “something more” directly targeting the forum is sufficient, and “something more” includes “individually target[ing] a plaintiff known to be a forum resident.” And the final element of the effects test was satisfied, because any harm suffered by SKEDCO would necessarily be felt in Oregon regardless of where it lost business.

The claims also arose out of/resulted from ARC’s forum-related activities: its allegedly false ads targeting an Oregon corporation.  ARC didn’t show that the exercise of jurisdiction would be unreasonable, despite its minimal contacts in Oregon.

The court also declined to dismiss the Lanham Act claims as laches-barred based on the pleadings; laches is usually fact-intensive.  The date of the comparative YouTube video was, ARC submitted, March 16, 2011.  ARC argued that SKEDCO therefore slept on its rights for over two years.  Assuming this to be true, the earliest date that laches could attach would be March 16, 2013, and SKEDCO sued on April 24.  It should have the opportunity to explain why the five-week delay was reasonable, and ARC also didn’t show prejudice, though it was free to renew its defense after discovery.

Finally, the court held, based on state appellate court cases, that common law unfair competition in Oregon covered only misappropriation of intellectual property, not false advertising.

image of P's product on D's site was insufficient evidence of passing off

Milos Misha Subotincic v. 1274274 Ontario Inc., 2013 WL 3964994 (C.D. Cal. April 9, 2013)

Plaintiffs, along with their patent infringement claim, alleged that defendants engaged in unfair competition and other torts.  The court granted summary judgment to defendants on the Lanham Act and coordinate state causes of action.  The claim was based on defendants’ use of video on a website that showed plaintiffs’ component (known as end effectors) as part of a larger system.

Actionable passing off includes “the use of a competitor’s advertising material, or a sample or photograph of the competitor’s product, to impliedly represent that the product being sold is made by the competitor.”  However, plaintiffs provided only an unauthenticated website screen shot.  There was no basis to infer that the end effectors in the screen shot were plaintiffs’.  Even assuming that to be the case, the screen shot showed that the website didn’t make any representation about what end effector was used in the system.  There were no identified express or implied claims about who originally produced each component of the overall system, nor claims about what products defendants currently sold.  The website simply stated that it showed videos of the prior implementations of the multi-part systems at issue.  And defendants bought genuine end effectors made by plaintiffs until they started to make their own (allegedly infringing) devices. Thus, there was no evidence in the record to support a passing off claim.   (See also: applications of Dastar.)

Kindle Worlds, destroyer of lifeworlds?

I’m mentioned in this interesting article on Kindle Worlds.

Keller v. EA: visual elements mean game isn't protected by First Amendment

In re NCAA Student-Athlete Name & Likeness Licensing Litigation (Keller v. Electronic Arts Inc.), No. 10-15387 (9th Cir. July 31, 2013)

Short version: replay of Hart v. EA.  Blech.

Tyler Ochoa has another summary, with commentary, up at Eric Goldman’s blog.  He notes the undeniable medium discrimination at work, and also points to a peculiarity of the way the courts are forced to deal with Rogers’ right of publicity analysis—since Rogers isn’t just a Lanham Act case—to pretend that there is no circuit split: “[t]he Keller court bizarrely suggests that the Rogers ‘wholly unrelated’ standard was merely a federal court’s Erie prediction about a matter of state tort law, rather than a federal First Amendment limitation on state tort law.” 

 

By adopting the transformative use test to balance the First Amendment considerations because that’s what Comedy III did, Prof. Ochoa notes that “[t]he Keller court thus (somewhat strangely) abdicated its role as a federal court to construe federal law, and instead deferred to a state court’s view of federal law.”  I’m in full agreement with these points—as to the last, here’s how the court summarizes its decision: “Under the ‘transformative use’ test developed by the California Supreme Court, EA’s use does not qualify for First Amendment protection as a matter of law because it literally recreates Keller in the very setting in which he has achieved renown” (emphasis added). 

 

Like the court in Brown v. EA, the court here spends a lot of time on the game’s aspirations to realism; but where realism confers First Amendment protection in Brown, it strips that protection in Keller.  Comedy III, the court held, gave “at least five factors to consider” in determining transformativeness.  (Which on its face sounds like a pretty unpredictable and chilling test for artists.  But of course medium discrimination/discrimination against visuals will get us most of the way to a result, so it’s only going to chill visual/audiovisual creators.  Yay?) 

(1) If the celebrity likeness is one of the “raw materials” from which an original work, it’s more likely to be transformative than if the depiction/imitation of the celebrity is the sum and substance of the work.

(2) A work that is primarily the defendant’s own expression is protected, as long as the expression is something other than the likeness of the celebrity.  (The visual again!  Even a laser-focused biography would clearly be protected as “primarily the defendant’s own expression.”)  This factor evaluates likely purchasers’ primary motivations, as inferred from the work itself (I added that last bit, but it’s not as if courts ever consult anything but their own intuitions about this)—whether the purchaser wants a reproduction of the celebrity or the artist’s expressive work.  (How would this even be tested?  If Andy Warhol is protected because he’s famous and thus people want his work specifically, as per Comedy III, then surely EA’s games have similar status among the relevant audiences.  But I suppose the court presumes that videogame players can’t be interested in aesthetic/haptic experiences, though I have no idea what the court thinks they are interested in, other than an undefined “realism.”)

(3) To avoid quality judgments, the court should conduct a quantitative inquiry and ask “whether the literal and imitative or the creative elements predominate in the work.”  (1 unit of realism = x units of artistic skill?)

(4) In close cases, the court should ask whether “the marketability and economic value of the challenged work derive primarily from the fame of the celebrity depicted.”  (Why is this different from (2)?  It is certainly no different in the evidence the courts use to determine the answer—their own evaluation of the appeal of the work.)

(5) “[W]hen an artist’s skill and talent is manifestly subordinated to the overall goal of creating a conventional portrait of a celebrity so as to commercially exploit his or her fame,” the work is not transformative.

The court ran through the key California cases: Comedy III, Winter v. DC Comics (transformative because the Winter brothers “are but cartoon characters . . . in a larger story, which is itself quite expressive,” which the Keller majority specifically calls out as important but never mentions again); Kirby v. Sega; and No Doubt v. Activision (holding that appearing in a context of a game with many other creative elements didn’t make the avatars anything other than exact depictions of No Doubt’s members doing exactly what they did as celebrities).  The 9^th Circuit also has Hilton v. Hallmark Cards, finding that a greeting card showing Paris Hilton working as a waitress wasn’t necessarily transformative.

Using those cases, the court concluded that EA’s use wasn’t transformative enough to entitle EA to the defense as a matter of law.  As in No Doubt, “users manipulate the characters in the performance of the same activity for which they are known in real life,” and the context was similarly realistic.

The dissent believed that the overall context of the game, in which Keller’s avatar was only a small part, showed transformativeness, but the majority didn’t agree: just because there were other creative elements in the game, that didn’t transform the avatars at issue into anything more than exact depictions of the players doing what they did as actual players.  “[T]he fact is that EA elected to use avatars that mimic real college football players for a reason. If EA did not think there was value in having an avatar designed to mimic each individual player, it would not go to the lengths it does to achieve realism in this regard. Having chosen to use the players’ likenesses, EA cannot now hide behind the numerosity of its potential offenses or the alleged unimportance of any one individual player.”  Nor did the ability to alter avatars matter; the avatars weren’t “fanciful, creative characters” or “portrayed as . . . entirely new character[s].”  (So much for biopics, eh?)  No Doubt was the best evidence of what California’s highest court would do, and the case was so similar that it controlled, given the court’s obligation to follow state courts on a matter of state law.  (As opposed to the First Amendment controlling, I suppose.)

In footnotes, the majority also rejected EA’s argument that No Doubt was distinguishable given the allegedly breached license agreement in that case; the No Doubt court didn’t rely on breach of contract in its right of publicity analysis.  Plus, Keller argued that EA contracted away its First Amendment rights in a licensing agreement with the NCAA that purportedly prohibited the use of athlete likenesses. This was for the district court on remand if a factfinder determined that EA’s use was transformative.  

Separately, the majority rejected the dissent’s argument that Keller was distinguishable because “an individual college athlete’s right of publicity is extraordinarily circumscribed and, in practical reality, nonexistent” because “NCAA rules prohibit athletes from benefitting economically from any success on the field.”  The NCAA rules are unfair, “but setting fairness aside, the fact is that college athletes are not indefinitely bound by NCAA rules…. EA’s use of a college athlete’s likeness interferes with the athlete’s right to capitalize on his athletic success once he is beyond the dominion of NCAA rule.”

The majority also disputed the argument that its rule would threaten all realistic depictions of actual people.  Comedy III “requires an examination of whether a likely purchaser’s primary motivation is to buy a reproduction of the celebrity, or to buy the expressive work of that artist,” quoting McCarthy.  (So what kind of evidence does EA get to put in on this?  Does it get to show that, like Andy Warhol, it has a reputation that drives sales of new EA games?  Does it get to show target consumers a crappy game featuring Keller’s likeness and an EA game and ask if consumers care about the difference, thus almost certainly demonstrating that the primary motivation for picking a game is the quality of the game and not the fact that it has Keller’s likeness in it?  Despite the total absence of evidence on these issues in previous cases, it seems to me that if we’re going to pretend that it’s the selling power of the celebrity identity that matters, one might at least empirically investigate whether that celebrity—or even the aggregate identities of the players—is actually affecting consumer choices compared to other elements of game quality.  Of course, “primary motivations” can be difficult to disentangle; Keller’s lawyers will probably suggest a different counterfactual/control, such as a generic football game produced by EA, though I imagine that even then they might be disappointed by the results.)

Anyhow, says the majority, this “primary motivation” test (which incidentally is pretty hard to distinguish from the execrable Doe v. TCI) “leaves room for distinguishing between this case—where we have emphasized EA’s primary emphasis on reproducing reality—and cases involving other kinds of expressive works.”  (Like biographies?  Or paparazzi photographs?  The court is simply unwilling to recognize that video games might have artistic value of their own; as with every other form of art, one way that such artistic value can come is from a style recognized as realist.)

The court then rejected Rogers for the right of publicity, since Rogers was designed to protect consumers from confusion, whereas the right of publicity “protects a form of intellectual property [in one’s person] that society deems to have some social utility.”  (Which society?  Which legislature explicitly decided that the right had utility applied to artistic works?)  Acquiring notoriety may require a lot of investment to generate commercial value, which is then allocated to the celebrity: “The right of publicity protects the celebrity, not the consumer.”  (As Professor Ochoa also noted, it’s very hard to understand why this is an argument for more limited First Amendment protection against right of publicity claims, and the court doesn't try to tell us.)  EA appropriated Keller’s talent and years of hard work on the football field.  (Like biographers, sports photographers, etc.)  True, Rogers also evaluated a right of publicity claim, but it was just guessing what Oregon courts would do, whereas the Ninth Circuit knows what California courts would do.

The majority also addressed two other defenses: one is for common law right-of-publicity claims for the “publication of matters in the public interest.” For statutory right-of-publicity claims, the “use of a name, voice, signature, photograph, or likeness in connection with any news, public affairs, or sports broadcast or account, or any political campaign” is exempt.  Both defenses protect only the act of publishing or reporting.  California courts have held documentaries protected, as well as baseball players’ data, verbal descriptions, and video depictions in game programs and on a website.  And posters portraying football victories were also protected.

Here, however, unlike those cases, “EA is not publishing or reporting factual data.”  But somehow the video game is still realist.  There is in fact a particular conception of realism that works without facts—realism as ideal type (e.g., the Pilgrim’s Progress or Audubon’s bird portraits)—but it’s completely inconsistent with the concept of realism as accuracy to specific individuals to which the court appealed when finding EA’s use nontransformative. 

Discrimination against video games allows the court to have it both ways: “A video game is a means by which users can play their own virtual football games, not a means for obtaining information about real-world football games.”  (Note the subtle shift from information about the players to information about the games.)  True, EA incorporated actual player information into the game, which is the basis for the suit, but “its case is considerably weakened by its decision not to include the athletes’ names along with their likenesses and statistical data. EA can hardly be considered to be ‘reporting’ on Keller’s career at Arizona State and Nebraska when it is not even using Keller’s name in connection with his avatar in the game. Put simply, EA’s interactive game is not a publication of facts about college football; it is a game, not a reference source.” The state law defenses didn’t apply.

Likewise, the majority rejected the dissent’s argument that the First Amendment should control because “the essence of NCAA Football is founded on publicly available data,” as in the fantasy baseball games protected in C.B.C. Distribution.  But there was a “big difference” here: pictures!  Fantasy baseball just used names, performance, and biographical data.  NCAA Football used virtual likenesses.  (I was under the impression that both the statutory and common-law rights of publicity purported to cover both names and likenesses on the same terms.) 

“It is seemingly true that each likeness is generated largely from publicly available data … but finding this fact dispositive would neuter the right of publicity in our digital world. Computer programmers with the appropriate expertise can create a realistic likeness of any celebrity using only publicly available data.”  Judge Kozinski’s White dissent remains prophetic: “But what does ‘evisceration’ mean in intellectual property law? Intellectual property rights aren't like some constitutional rights, absolute guarantees protected against all kinds of interference, subtle as well as blatant.  They cast no penumbras, emit no emanations: The very point of intellectual property laws is that they protect only against certain specific kinds of appropriation.” 

But, the majority continued, what if EA created a virtual likeness of Tom Brady using only publicly available data? Would it have free reign to use that likeness in commercials?  Of course not! Therefore EA loses in this case.  (You don’t need me to point out that adding “in commercials” changed the example entirely and proved nothing, right?  Also, if I’m not mistaken, this is the circuit that found a claim in the use of the name—not the image—“Lew Alcindor” in an ad; does the court now think that use of nonvisual data alone in an ad is protected by the First Amendment, since it’s the virtual likeness and the biographical data that makes the difference?)

Judge Thomas dissented, largely agreeing with Judge Ambro’s Hart dissent, down to accepting transformativeness as the proper test.  “Because football is a matter of public interest, the use of the images of athletes is entitled to constitutional protection, even if profits are involved.”  The dissent cautioned that Comedy III didn’t really set out five factors, but engaged in a “more holistic examination of whether the transformative and creative elements of a particular work predominate over commercially based literal or imitative depictions.”  Too much deconstruction misapplies the test, which is what happened here.  The key question is whether the overall work is transformative, “and whether the transformative elements predominate, rather than whether an individual persona or image has been altered.”

NCAA Football was a work of “interactive historical fiction.”  Players role-played as college football players.  Gamers have many options for how they can behave and alter avatars.  “The athletic likenesses are but one of the raw materials from which the broader game is constructed. The work, considered as a whole, is primarily one of EA’s own expression.”  The marketability and economic value of the game came from its creative elements, not pure commercial exploitation of celebrity image.  (For fairness: I also wonder how the dissent knows this.  The fact that the majority and the dissent know completely different facts about the sources of the economic value of the game indicates that the word “economic” is a screen for a different concept altogether, something about artistic value and/or desert and/or acceptable versus unacceptable free riding.)  “The game is not a conventional portrait of a celebrity, but a work consisting of many creative and transformative elements.”

No Doubt was distinguishable—the literal representations there couldn’t be transformed in any way, but were created by using motion capture photography.  Character immutability was a key distinguishing factor.  Initial placement of realistic avatars in the game wasn’t enough to overcome the First Amendment’s protection, as No Doubt held, “even literal reproductions of celebrities may be ‘transformed’ into expressive works based on the context into which the celebrity image is placed.”  

The dissent wouldn’t punish EA for its realism and “for the skill of the artists who created realistic settings for the football games. That the lifelike roar of the crowd and the crunch of pads contribute to the gamer’s experience demonstrates how little of NCAA Football is driven by the particular likeness of Sam Keller, or any of the other plaintiffs, rather than by the game’s artistic elements.”

The dissent also pointed out that a “balancing” inquiry also requires consideration of the strength of the interest on the other side of the scales: not all right of publicity claims implicate the same concerns.  Here, NCAA Football was different from the traditional subject matter of right of publicity cases, both quantitatively and qualitatively.

Quantitatively, the sheer number of virtual actors involved made a difference.  The game’s cast of thousands gained particular significance in determining “whether the source of the product marketability comes from creative elements or from pure exploitation of a celebrity image.”  There was no evidence that Sam Keller possessed any personal marketing power, as distinguished from the appeal of the game’s creative aspects, and in any event, the sheer numbers involved “inevitably diminish the significance of the publicity right at issue.”  In the key California cases, the celebrities were the only subject matter, or they were pivotal characters—they were “central to the production,” and contact with consumers was “immediate and unavoidable,” whereas one could play NCAA Football thousands of times without ever encountering a given avatar. 

Qualitatively, NCAA Football was based on publicly available data.  True, EA solicited and received information directly from colleges and universities, but that information was hardly proprietary—it was statistics for players, found all over the place.  This was indistinguishable from C.B.C. Distribution.

The dissent also addressed whether “any use of a likeness founded on publicly available information is transformative.” The hypothetical virtual Tom Brady ad, the dissent reasoned, was inapposite because (1) commercials aren’t interactive, and (2) Brady had established marketing power, as plaintiffs didn’t.  (Sigh.  This is what you get when you fail to distinguish commercial from noncommercial speech—a bunch of other distinctions that don’t work very well.) 

Here, the structure of the game wasn’t founded on exploiting individual publicity rights—the players were unidentified by name, though one could easily put names to stats.  Anonymity bore on whether the product’s marketability was driven by an individual celebrity, or by the game itself.  (One might distinguish between marketability driven by realism and marketability driven by desire to possess some artifact representing the celebrity avatar, though again that requires a level of psychological inquiry I doubt courts can handle.)  The lack of names also distinguished No Doubt, “where the whole point of the enterprise was the successful commercial exploitation of the specifically identified, world-famous musicians.”  Anyway, college athletes’ rights of publicity are heavily restricted.  This is unfair, but the NCAA’s relationship to student athletes was beyond the scope of the appeal.  Given the quality of the right at issue—tiny—the First Amendment balancing should favor EA.

The majority responded that EA’s use of realistic likenesses demonstrated that it sees “value in having an avatar designed to mimic each individual player.”

But the same is true of any right of publicity case. The defendants in Winter saw value in using comic book characters that resembled the Winter brothers. Andy Warhol—whose portraits were discussed in Comedy III—saw value in using images of celebrities such as Marilyn Monroe. In those cases, the products’ marketability derives primarily from the creative elements, not from a pure commercial exploitation of a celebrity image. The same is true of NCAA Football.

As the dissent pointed out, “[t]he logical consequence of the majority view is that all realistic depictions of actual persons, no matter how incidental, are protected by a state law right of publicity regardless of the creative context. This logic jeopardizes the creative use of historic figures in motion pictures, books, and sound recordings.”  (In practice, I expect the dissent will be wrong, given the persistent medium discrimination in which courts engage—but it could be right about motion pictures!)

Multiproduct California class certified in natural/artificial case

Astiana v. Kashi Co., 2013 WL 3943265 (S.D. Cal. July 30, 2013)

The court certified two classes of people who bought Kashi food products, though neither as large as plaintiffs wanted.  Bringing the usual California claims, they alleged that Kashi deceptively sold products as having “Nothing Artificial” (10 products) or being “All Natural” (91 products), when in fact certain ingredients and processes used to make the products were not “natural” but rather synthetic.  Kashi argued, among other things, that consumers and producers have no uniform definition of “natural” and, accordingly, the representations were not materially false.

The court certified a “Nothing Artificial” class of California consumers.  Kashi argued that the class wouldn’t be ascertainable.  A class definition must be definite enough to make determining membership administratively feasible.  The proposed class definition met that standard: purchasers of Kashi products that included the allegedly material misrepresentations.  “Because the alleged misrepresentations appeared on the actual packages of the products purchased, there is no concern that the class includes individuals who were not exposed to the misrepresentation.”  True, Kashi didn’t have purchase records for individuals, and class members would likely lack proof of purchase.  But there’s no requirement that the identity of class members must be known at the time of certification; if that were true, there’d be no such thing as a class action.  Kashi also argued that the class had to be defined so that anyone within it would have standing, and that the class definition included members who were unexposed to the alleged misrepresentations or who bought for other reasons.  But California law allows causation/reliance to be established classwide by materiality, thus creating actual injury for the class.

Kashi didn’t dispute numerosity, and commonality was also easy, despite Kashi’s argument that differences in products and consumer motivations meant that the issues weren’t common.  However, commonality only requires some common issues of fact and law capable of classwide resolution, which was the case here. “Courts routinely find commonality in false advertising cases that are materially indistinguishable from this matter.”  The argument that the representative plaintiff could only represent purchasers of the exact same product, not similar products with the same alleged misrepresentations, also failed.  “Plaintiffs seek common relief in the form of restitution for their purchases and injunctions prohibiting the allegedly false advertisement to continue.”

Kashi also contested typicality, arguing that differences in the named plaintiffs’ perceptions and knowledge about Kashi products, and their preferences and reasons for purchase, rendered them atypical.  But the focus is on defendants’ conduct and the plaintiffs’ legal theory, not the injury caused, and the California statutes also use an objective test for likely deceptiveness, making individual experience irrelevant.  The plaintiffs alleged reliance and harm (they wouldn’t have bought the products or would have paid less for them had they known the truth), thus alleging the same type of damages as the putative class members.  They didn’t need to show that the misrepresentations were the only cause, or even the predominant or decisive factor, in their purchases; considering other factors wouldn’t make them atypical.  Also, they might buy other products that are unhealthy or otherwise artificial, but that “says nothing about whether they purchased Kashi products specifically because they were supposedly healthy and natural.”  (Indeed, such weakness might make them vulnerable to all-natural type claims, as a way to balance out their purchases.)

The court also found that the named plaintiff would be an adequate representative.

Turning next to Rule 23(b)(3), the court addressed predominance and superiority. Kashi argued that individual issues of reliance and injury defeated predominance, but the court held that the plaintiffs made a sufficient showing of materiality to create an inference of reliance, so common issues predominated, given that relief under California’s consumer protection law is available without individualized proof of deception, reliance, and injury, so long as named plaintiffs show injury and causation, which itself is shown by materiality.  Unlike “All Natural,” “Nothing Artificial” had a clearly ascertainable meaning: no artificial or synthetic ingredients.  The named plaintiff alleged that she bought Kashi products because of that claim, and would have paid less or bought something else if she’d known the truth. 

There was a sufficient showing for the purpose of class certification that the challenged ingredients might be considered artificial or synthetic, and that reliance occurred. The proposed “Nothing Artificial” class covered Kashi’s “Heart to Heart” product line, including ten products, “alleviating concerns that individual purchasing factors for a variety of products would predominate.”  Though Kashi challenged plaintiffs’ evidence of materiality in light of the challenged ingredients, that was a determination for a factfinder; the representation wasn’t immaterial as a matter of law.  “For the purposes of class certification, it is sufficient that the alleged material misstatement and omission was part of a common advertising scheme to which the entire class was exposed, and is a sufficiently definite representation whose accuracy has been legitimately called into question.”  There was also predominance for the associated breach of express warranty/quasi contract claims.

As for individual damages, they typically don’t overcome predominance of common issues on liability. The named plaintiff claimed the same type of economic injury and damages as the putative class members.  They could seek an amount representing the difference between expected and received value.  For certification, the plaintiff has to present a likely method for determining damages, and plaintiffs here claimed they could calculate restitutionary damages based upon sales, profits and prices data from records generally maintained by Kashi. “If individual issues as to how much reward each class member is entitled later predominate, the Court can address such concerns at that time.”

This was also a claim involving many people and small sums, a standard indicator that a class action was superior to individual lawsuit.

“All Natural” Class: The court narrowed plaintiffs’ proposed class.  For most of the challenged ingredients, plaintiffs didn’t adequately show materiality, as necessary to infer reliance by the class. Kashi argued that consumers and food producers, not to mention the FDA, lacked any uniform definition of “All Natural” that affects purchasing decisions.  Kashi’s challenged products contained as little as 0.01% and, at most, 5% by weight the challenged ingredients, and it presented evidence that many consumers would still view a product as a “natural food product” despite these amounts (“All Natural”?).  Plus, plaintiffs were challenging over 90 different products labeled “All Natural,” with different ingredients and different advertising campaigns, and which would involve differing consumer decision processes.  Ten of the 13 challenged ingredients were allowed in “organic” foods, and consumers—including the named plaintiffs—often equate “natural” with “organic” or hold “organic” to a higher standard; named plaintiffs also disagreed about the definition of “All Natural” and about whether the challenged ingredients satisfied their expectations of “All Natural” products.  And Kashi provided a definition of “natural” on its website, available to putative class members, that accommodated most of the challenged ingredients.

Thus, plaintiffs failed to show that class members would view the presence of ingredients permitted in “organic” foods as not “All Natural,” especially in light of the large number and different types of products challenged. Without a common inference of materiality, the class couldn’t be certified. However, there was a sufficient showing of materiality to certify a class pertaining to hexane-processed soy ingredients, calcium pantothenate, and pyridoxine hydrochloride. Hexane is a “synthetic organic chemical manufacturing industry chemical,” and Kashi admitted that hexane-processed soy ingredients didn’t even satisfy Kashi’s own definition of “All Natural” according to its website. The other two ingredients were designated by statute as “synthetic” but, unlike the other challenged ingredients, weren’t permitted in certified “organic” foods. Thus, there was a sufficient showing of materiality for this limited class.

The court also declined to certify a nationwide class under California law, finding this case on all fours with Mazza v. Honda American Honda Motor Co., 666 F.3d 581 (9th Cir. 2012).

The First Amendment in play: Brown v. EA

Brown v. Electronic Arts, Inc., No. 09-56675 (9th Cir. July 31, 2013)

Jim Brown, a well-known football player, alleged that EA violated the Lanham Act by using his likeness in Madden NFL.  The 9^th Circuit uses the Rogers test to balance First Amendment interests in free expression against the public interest in freedom from confusion about affiliation and endorsement when it comes to expressive works.  Therefore, Brown lost, despite a different result on right of publicity claims in Keller on the same day (extended rant to follow about valuing the private interest in making money more heavily than the private interest in making money + the public interest in avoiding deception); the court emphasized that the outcome might have been different with a right of publicity claim, but that was dismissed and will be litigated at the state level.

Madden NFL allows users to control avatars representing pro players.  Each version includes the current year’s NFL teams, and each avatar on those teams is designed to mirror a real current NFL player, including the player’s name, jersey number, physical attributes, and physical skills.  Some versions also include historical and all-time teams, for which no names are used.  But the players are still recognizable “due to the accuracy of their team affiliations, playing positions, ages, heights, weights, ability levels, and other attributes.”  EA licenses names and likenesses of current players from the NFL and NFL Players Association, but former players like Brown aren’t covered.

Rogers is the test for balancing First Amendment rights against §43(a) interests in cases involving expressive works, not just for titles but for material in the body of a work. E.S.S. Entertainment 2000, Inc. v. Rock Star Videos, Inc., 547 F.3d 1095 (9th Cir. 2008).  The court rejected Brown’s invitation to apply the likely confusion test of Dr. Seuss Enterprises, L.P. v. Penguin Books USA, Inc., 109 F.3d 1394 (9th Cir. 1997), or the “alternative means” test found in International Olympic Committee v. San Francisco Arts & Athletics, 781 F.2d 733 (9th Cir. 1986), aff’d on other grounds, S.F. Arts & Athletics, Inc. v. U.S. Olympic Comm., 483 U.S 522 (1987).  The ordinary likely confusion test fails to account for “the full weight of the public’s interest in free expression” when expressive works are involved.  (I assume then that The Cat NOT in the Hat was not an expressive work?  Oh, never mind.)  Rogers rejected the adequate alternative means test for the same reason, and the 9^th Circuit adopted that reasoning.

Under Rogers, the level of artistic relevance merely must be above zero.  “This black-and-white rule has the benefit of limiting our need to engage in artistic analysis in this context.” (Citing Bleistein’s nondiscrimination principle; it’s too bad that somehow the right of publicity justifies adding art criticism to the judge’s role.)  And use of Brown’s likeness was artistically relevant, because as Brown himself argued, “EA prides itself on the extreme realism of the games.”  (So, artistic relevance will turn into a right of publicity violation for works—okay, just video games—in the realist mode.)  The ’65 Cleveland Browns can’t be the ’65 Cleveland Browns without the players who played for the ’65 Cleveland Browns, especially the team’s most famous player, Brown.  This was at least artistic relevance more than zero.  It didn’t matter that he was just one of many players in the game.

Brown argued that, as in Parks v. LaFace Records, 329 F.3d 437 (6th Cir. 2003), EA had denied Brown’s relevance/importance to Madden NFL.  But in Parks, it wasn’t just Outkast’s denial that the song Rosa Parks was about Parks that mattered; the lyrics weren’t about her.  Even if EA made the same denial as Outkast did, which it didn’t, the content of the games was clearly related to Brown.  Plus, EA denied using certain aspects of Brown’s likeness (in letters, EA officials have claimed that “Brown has not appeared in any Madden NFL game since 1998,” and that “Brown’s name and likeness does not appear in Madden NFL 08 or any packaging or marketing materials associated with the product”). 

But EA didn’t deny that Brown’s likeness was relevant to the games; rather, it denied that Brown’s likeness was present.  If the denials were true, then Brown had no claim at all, whereas Outkast didn’t deny that it used Parks’ name.  “If artistic irrelevance can only be proven by accepting the truth of EA’s denial of the use of Brown’s likeness,” Brown couldn’t make out a Lanham Act claim.  Plus, on a motion to dismiss, Brown’s allegations had to be accepted as true, and Brown alleged that his likeness was used.  (One reading is that Brown was implicitly trying to re-import the rejected “adequate alternative means” test into artistic relevance by arguing that the fact that his name had already been removed proved that there wasn’t artistic relevance to his identity, since the game could obviously survive without certain elements of his identity.  Still a losing argument, though.)  Parks worried that a celebrity’s name could be “appropriated solely because of the vastly increased marketing power of a product bearing the name of [the celebrity].”  This was a “legitimate concern,” but “the court’s determination that the lyrics of Outkast’s song may very well have nothing to do with Rosa Parks or the civil rights movement [] made that concern much more realistic in that case than in this one.”  EA didn’t make Jim Brown Presents Pinball, with no relation to Brown or football beyond the title; it made a football game featuring likenesses of thousands of current and former NFL players, including Brown.  (Periodic reminder that this rationale grants First Amendment protection versus the Lanham Act, but strips First Amendment protection versus the right of publicity.)

Brown also invoked American Dairy Queen Corp. v. New Line Productions, Inc., 35 F. Supp. 2d 727 (D. Minn. 1998), where the losing defendant admitted that it didn’t intend the title Dairy Queens to refer to plaintiff, and therefore the court found that it could express its ideas in other ways.  This was both inapposite on the facts and not an application of Rogers.

Brown complained that the relevance-above-zero standard rendered Rogers, which was supposed to balance First Amendment interests against the interest in preventing deception, “an inflexible and mechanical rule that more or less automatically protects expressive works regardless of the deception involved. But a balance need not be designed to find each of the sides weightier with equal frequency.”  (Periodic reminder that the companion right of publicity case is going to reject Rogers because it would mean defendants would win too often, just like the Third Circuit did in Hart.) 

Rogers clearly explained that its test would normally prevent a Lanham Act claim against an expressive work. “‘Intellectual property rights aren’t free: They’re imposed at the expense of future creators and of the public at large,’ White v. Samsung Elecs. Am., Inc., 989 F.2d 1512, 1516 (9th Cir. 1993) (Kozinski, J., dissenting from denial of rehearing en banc), and the Rogers test applies when this expense is most significant.”  (Ed. note: OK, irony meter pegged; Kozinski, of course, is talking about the right of publicity.)

Brown argued that he could prevail on the “explicitly misleads” part of Rogers, even if there was artistic relevance.  Explicitness is key here.  Implicit suggestions won’t suffice, given the risk to artistic expression of broadly interpreting endorsement or sponsorship.  Brown argued that the use of his likeness in the game plus a consumer survey “demonstrating that a majority of the public believes that identifying marks cannot be included in products without permission” raised a triable fact on explicitness.  Use of a mark alone can’t be explicitly misleading; that would render Rogers a nullity.  “Adding survey evidence changes nothing.”  Evidence of explicit misleadingness can only come from the “nature of the behavior of the identifying material’s user,” not “the impact of the use.”  Rogers rejected a survey; ETW v. Jireh also rejected a survey purporting to find 60% confusion over affiliation/connection, because the risk of incorrect inferences/misunderstandings was outweighed by the interest in artistic expression.

Brown also argued that certain written materials were explicitly misleading; this was at least the right kind of evidence, but the statements to which he pointed didn’t show any attempt to mislead:

Brown points to materials that say that one of the game’s features was the inclusion of “[f]ifty of the NFL’s greatest players and every All-Madden team.” Since Brown is one of the fifty greatest NFL players of all time and has been named to the “All Madden, All Millennium” team, Brown argues that the statement “explicitly represents that Brown was in EA’s game.” But Brown needs to prove that EA explicitly misled consumers about Brown’s endorsement of the game, not that EA used Brown’s likeness in the game; nothing in EA’s promotion suggests that the fifty NFL players who are members of the All Madden, All Millennium team endorse EA’s game.  (emphasis added)

This was true and not misleading.

Brown then argued that changes in his likeness were explicitly misleading: EA “made changes to certain versions of the game that might make a consumer of the game less confident that the player in question was intended to be Brown,” most notably changing the avatar’s jersey number from 32 to 37.  Whatever EA’s litigation-avoidance motives in “scrambling” his likeness, “an action that could only make consumers less likely to believe that Brown endorsed Madden NFL cannot possibly satisfy the second prong of the Rogers test.”  Likewise, various comments made by EA officials weren’t explicitly misleading.  They allegedly contradicted statements to Brown’s attorneys that “Brown has not appeared in any Madden NFL game since 1998” and that “Brown’s name and likeness does not appear in Madden NFL 08 or any packaging or marketing materials associated with the product” by saying at a USC Law School conference that EA could use images and likenesses of players because it had written authorization from the players and the NFL.  Statements in letters to Brown’s attorneys were irrelevant; they were neither made to consumers nor said anything about endorsement. 

The statement at the conference, too, was made to a limited audience, not to consumers.  “If a similar statement appeared on the back cover of a version of Madden NFL, that might satisfy the ‘explicitly misleading’ prong, or at least raise a triable issue of fact, but a statement made at an academic conference about all of the likenesses used in the game could not realistically be expected to confuse consumers as to Brown’s involvement.”  Brown also argued that using the (licensed) logo of the NFL Players Association and the (true) statement “Officially Licensed Product of NFL PLAYERS” on the packaging was explicitly misleading, since it could be understood by consumers to mean that retired players, including Brown, endorsed the game.  The court dodged this argument (which raises complex issues of the validity of the NFL Players mark, if you think about it) by holding that Brown failed to raise the argument in his opening brief.  For the same reason, it declined to address Brown’s argument that using his likeness on the back covers of packages was explicitly misleading (though, per Rogers, it really can’t be, for the same reason that use of a name alone can’t count as explicitly misleading).

Reading list: consumer protection

I haven't gotten to these yet, but today's list, via SmartCILP, is a hopeful indicator of a surge in academic attention to consumer protection/advertising law issues:

DeVeau, Taryn M. Note. Naturally confusing consumers: express federal preemption of state claims regarding false and misleading food product labels. 5 Ky. J. Equine, Agri., & Nat. Resources L. 119-141 (2012-2013).

Friedman, David Adam. Explaining "bait-and-switch" regulation. 4 Wm. & Mary Bus. L. Rev. 575-638 (2013).  (I linked the SSRN version, but there's also a journal version.)

Lantagne, Stacey M. A matter of national importance: the persistent inefficiency of deceptive advertising class actions. 8 J. Bus. & Tech. L. 117-156 (2013).

Millan, Meaghan. Note. The justiciability of state consumer protection claims in federal courts: a study of named plaintiffs who cease using the disputed product yet seek injunctive relief. 81 Fordham L. Rev. 3565-3598 (2013).

Patsner, Bruce. Direct-to-consumer advertising of restricted, surgically implanted medical devices: what does the advertising arena look like, and whose regulatory problem is it? 39 Wm. Mitchell L. Rev. 1207-1228 (2013).

copying articles for patent prosecution is fair use

American Institute of Physics v. Schwegman Lundberg & Woessner, P.A., No. 12-528 (D. Minn. July 30, 2013) (magistrate report and recommendation)

AIP (aka the scientific journal publishers) sued Schwegman for using various published articles in its patent prosecution practice. The magistrate concluded that this was fair use as a matter of law and recommended a grant of summary judgment in Schwegman’s favor. 

Schwegman obtained and copied 18 of the publishers’ journal articles from a USPTO database and other sources; the publishers alleged that obtaining these copies and making internal copies infringed.  Initially, the publishers alleged that submitting copies to the USPTO in conjunction with patent applications was infringing, but eventually amended the complaint so that they weren’t alleging infringement from making copies required by PTO rules and regulations, transmitting such copies to the PTO, or making an archival copy for an internal file documenting the transmission. Instead, they limited their claims to Schwegman’s downloading, storing, making internal copies of, and distributing the Articles by email. The publishers didn’t concede that submitting copies to the PTO wasn’t fair; they just didn’t challenge it.

However, the magistrate continued, the allegedly infringing uses remained intertwined with Schwegman’s patent prosecution practice, making US and foreign patent requirements relevant.  The PTO has to evaluate the teachings of all information material to patentability, and therefore imposes a duty of candor and good faith in dealing with the PTO.  This includes a duty to disclose “all information known to [an individual associated with the prosecution of a patent application] to be material to patentability,” whether it helps or harms the application. To comply with this duty, the PTO encourages submission of an Information Disclosure Statement, which must include “a legible copy of . . . [e]ach publication or that portion which caused it to be listed [and] [a]ll other information or that portion which caused it to be listed[.]”  Generally, if an article is merely cited instead of submitted in full, the PTO won’t consider it.  Other than filing a disclosure statement, the record didn’t show any other means by which applicants could or do comply with the disclosure requirement. Schwegman provided the articles at issue to the PTO to comply with the duty of disclosure; it also used one of the articles in helping a client apply for Japanese and European patents.  The rules for those jurisdictions are not identical, but the EPO imposes a limited duty of disclosure of prior art, and the JPO also imposes an obligation to provide references to prior art.  Both offices cited the article at issue in various proceedings; a Schwegman attorney later accessed an electronic copy of the article in Schwegman’s electronic document management system in response to the JPO office action and printed out a copy to review.

The magistrate turned to the expected audience for the articles, which the publishers claimed included inventors and patent attorneys.  The publishers have, through the CCC, issued licenses to nine law firms for internal reproduction of articles. Schwegman’s evidence was that the publishers’ journals served as a platform “through which original research findings are submitted by authors, peer-reviewed by experts and then transmitted to the intended reader audience of scholars and practitioners.” Authors want to publish in reputable journals to increase their prestige, and readers searching for high-quality research are essential to the journal’s reputation, creating a two-sided market in which “‘authors benefit from greater impact and citations and thus prefer a journal that has more readers, [and] readers benefit from content and thus prefer journals with more articles.’” The publishers attempt to capitalize on this by highlighting their journals’ rankings within their specialties.  “According to Schwegman’s expert witness, economist Dr. Jean-Pierre Dubé, attorneys reviewing scholarly articles to decide whether those articles must be submitted as prior art to a patent office read the articles for a different purpose and fall outside the target audience for such material.”  However, Dubé acknowledged that if a lawyer who was willing to pay for a copy of an article to review it didn’t pay, that would affect the potential market for copies.

Schwegman obtained the articles in various ways, mostly by downloading them from a PTO website, PAIR (Patent Application Information Retrieval system).  Public PAIR provides interested people access to issued patents and published patent applications. Private PAIR “provides secure real-time access to pending application status and history” for registered patent attorneys, independent inventors, and individuals with “customer number[s]” or a certificate.  For some of the articles retrieved from Private PAIR, Schwegman inherited patent application files from another law firm that cited the relevant articles, but the inherited files did not contain copies of the articles, so Schwegman downloaded them and stored them in its own electronic file management system.  The other articles came from a variety of sources, including the University of Pennsylvania website and an attachment to an email to a Schwegman lawyer from an inventor in whose patent application the relevant was cited as prior art.  One article was downloaded subject to a license from one of the publishers.  All the articles were eventually cited in US patent applications.  

The publishers alleged that Schwegman infringed by (1) obtaining copies through emails, from the internet, and otherwise; (2) storing copies on the firm’s electronic file management system; (3) viewing them; (4) emailing copies to the firm’s clients; and (5) emailing one article to another attorney in connection with a foreign patent application in Europe, and making a physical copy of that article in connection with a foreign patent application in Japan.  The core issue, since it’s hard for lawyers to control what gets emailed to them, surrounded the document management system, which allows lawyers to access documents stored on the firm’s server.  Schwegman doesn’t restrict lawyers’ ability to access such files, but the purpose of its database is to store articles that will be disclosed to the PTO.  The system doesn’t allow text searches, only metadata searches (e.g., author and title), which aren’t very useful in a search for prior art.

So, fair use.  When the defendant’s use isn’t for the same “intrinsic” purpose as the copyright owner’s, that supports fair use.  A reasonable jury could only conclude that Schwegman’s purpose was to comply with the PTO’s disclosure rules and to represent its clients’ interests in obtaining patents in Europe and Japan. No record evidence supported any other purpose distinct from Schwegman’s compliance with the obligations imposed by various patent offices. This purpose was not the same as the publishers’ purpose: they produced their articles “for a purpose that has little, if any, relationship to Schwegman’s purpose in using them.”  Rather than acting with a purpose of providing information relevant to patentability of specific inventions, the publishers distributed the articles “to inform the scientific community of advancements in scientific research and new scientific discoveries that have been made, and to allow the scientific community to test the quality of the authors’ methods and conclusions.”  The publishers’ own declaration stated that their purpose was  to “inform[] interested readers of the state of the art,” not to “ensur[e] that a government agency is provided with the information it needs to determine whether an invention is novel or non-obvious.”

The magistrate also noted that no reasonable jury could find that the copyrightable elements of the articles—their expression, as opposed to the facts they conveyed—had any relationship to Schwegman’s use.  This weighed heavily in favor of fair use.

It didn’t matter that there was no change in the content in Schwegman’s hands.  That might make the term “transformative” “a messy fit” because that label seems most apt when a user actually changes the content of the work (but note that Tony Reese has long argued that change in purpose is a much better predictor of a fair use finding than change in content, and this decision is another datum in favor of his argument).  But pure reproduction can still be fair use when the purpose and character of the use differs from the purpose of the original, “such as photocopying for use in a classroom.”  (Citing §107, as well as the legislative history and William Patry.)  Cases in which defendants used works in connection with judicial proceedings supported this conclusion: evidentiary use is “indifferent to” the copyrightable elements of the work. 

This new and different purpose extends to internal copies a law firm makes while it analyzes copyrighted material and determines whether it would serve the client’s interests to present the material to a decision-maker.  Schwegman’s use here had a similarly evidentiary character related to effective client representation. “[I]t would be an absurd result if an attorney seeking to advance her client’s interests before a patent office were not permitted to copy and review the very type of information that the attorney is required to evaluate in connection with a patent application.”  Only the facts and ideas contained in the articles were of use to Schwegman.  Thus, no reasonable jury could find that the purpose and character of Schwegman’s use was the same as the publishers’ intrinsic purpose. 

Commerciality therefore played a limited role.  The key profit/nonprofit distinction was “whether the user stands to profit from exploitation of the copyrighted material without paying the customary price.” Citing Harper & Row, the publishers argued that Schwegman’s profit-seeking status should weigh against it, especially since Schwegman charged clients a flat rate for downloading documents from Private PAIR and billed for attorney and paralegal time spent locating and reviewing relevant prior art.  But this wasn’t a case of unfairly profiting without paying the customary price, because of the new and different evidentiary character of the use. The publishers argued that this was just Texaco redux.  American Geophysical Union v. Texaco Inc., 60 F.3d 913 (2d Cir. 1994). But in Texaco, the evidence showed a systematic process of encouraging employees to copy articles to make more copies available without paying.  Here, there was no evidence that would allow a reasonable jury to conclude that Schwegman was maintaining a mini-research library to avoid paying per-lawyer licenses.  It would be different if the law firm was making copies of “a copyrighted legal treatise on patent prosecution or a practitioner’s manual on effective methods for filing patent applications with the USPTO or other patent offices,” in which case the purpose of its use would likely be identical to the original purpose of teaching lawyers to prosecute patents.

Then the magistrate jumped straight to factor four.  There was no evidence of an effect on the traditional target market: “academics, physical scientists and researchers, engineers, educators, students, and members of the general public who want to read peer-reviewed scholarly, highly specialized articles about the physical sciences and other scientific disciplines.”  The only evidence the publishers submitted was the fact that they’d lose revenues compared to a world in which patent lawyers did pay license fees.  Licenses are available, and some patent law firms did pay for licenses, though the record didn’t show whether those licenses were for uses made to comply with PTO and foreign patent office requirements.  But the missing license fee can’t be the sort of negative effect that weighs heavily against a finding of fair use, or it would always weigh against fair use and make this factor meaningless.  As Bill Graham Archives held, the copyright owner isn’t entitled to preempt a defendant from exploiting markets that that weren’t “‘traditional, reasonable, or likely to be developed[.]’”  And the first factor is heavily interrelated to the fourth; the fact that Schwegman’s use was different than, and not superseding, the original purpose meant that this market wasn’t traditional, reasonable, or likely to be developed.  That some law firms took licenses didn’t make patent firms into such a market.  (It’s not hard to see that “likely to be developed” here is not an empirical claim nearly as much as it is a normative claim founded on the first two concepts in this triad.)  Texaco was not to the contrary, even though that case relied on the fact that the publishers made a license available; that case didn’t involve a new purpose.

Clean-up: the nature of the copyrighted work weighed slightly in Schwegman’s favor, given the highly factual content of the articles. The amount used was the whole work, but this factor has to be considered in context of factor one: whether the amount used is reasonable in relation to the copying’s purpose. Copying an entire work doesn’t preclude a finding of fair use if that’s not more than necessary to further the purpose.  “The evidence permits no reasonable inference other than that Schwegman’s copying was essential to allow the law firm to evaluate whether the information in the Articles was prior art that needed to be disclosed in connection with patent applications.”  Thus, factor three also favored a finding of fair use.

Other factors: the publishers argued that fair use was inappropriate because Schwegman never had an authorized/licensed copy.  But there was no authority requiring this when the use is fair.  This seemed to be a bad faith argument.  But there was no indication that “Schwegman simply stole the Articles the way a person might when he ‘pirates’ a song on the internet.”  Schwegman paid for a copy of one article, and obtained others from Private PAIR when they inherited client files.  Other sources were undetermined; one came from a university website (did the publisher send a takedown notice?), and one from a client.  These were not the acts of a “chiseler.” No reasonable jury could find bad faith. 

Schwegman’s use didn’t create any reasonable disincentive for the publishers to keep on publishing, and its copying promoted the progress of science and useful arts, the very purpose of the Copyright Act, by assisting patent examiners.

The magistrate recommended denying PTO’s motion for summary judgment on its counterclaim for a declaratory judgment of fair use as moot.  The PTO was basically an amicus, not a party with a cognizable Article III case or controversy.

Australian parliament: Australians should circumvent geolocks

Ars Technica has the story.  When copyright is used for purposes that seem to be about extracting higher-than-monopoly profits, people apparently get upset!

reliance on general employment statistics unreasonable as a matter of law

Macdonald v. Thomas M. Cooley Law School, Nos. 12-2066/2130 (6^th Cir. July 30, 2013)

The court of appeals affirmed the district court’s grant of Cooley’s motion to dismiss consumer protection claims by twelve graduates alleging that the school disseminated false employment statistics which misled them into deciding to attend Cooley.

Facts to set the stage: Cooley enrolls more law students than any other law school in the country, about 4000 in 2010-2011, 82% of them part-time.  It costs an estimated $52,000 per year in total.  Its dean is one of the highest-paid law school deans in the country, and it also continued to pay its former dean and founder roughly $370,000 per year.  US News says it has the lowest admissions standards of any accredited/provisionally accredited law school in the country: 83% of all applicants, 15% more than the second least selective school.  Mean LSATs and undergraduate GPAs for incoming students were also the lowest in that set.  And it has low retention rates: in 2008, about 32% of the students who enrolled failed to enter their second year; 10% of second-year students failed to enter their third year; 3% of third-year students failed or dropped out.  Graduates have an average of over $100,000 in student loan debt.

Plaintiffs alleged that they enrolled at and continued at Cooley to better themselves through the attainment of full-time legal employment, relying on the employment and salary report Cooley provided on its website.  The reports purported to show, for a given class year, the percentage of graduates employed, the average starting salary of graduates, the percentages of graduates employed in various sectors—private practice, government, public interest, academic, judicial clerkship, and business—and the average starting salary in each sector.  Cooley produced these reports by sending surveys to graduates; for example, 83% of 2010 graduates provided the basis for the 2010 report.  Cooley didn’t audit or verify the responses.

Plaintiffs identified two misrepresentations on which they relied: (1) The percentage of graduates employed within 9 months of graduation, in 2010 listed as 50% private practice, 15% government, 2% public interest, 3% academic, 3% judicial clerkship, and 18% business.  (2) The average starting salary, listed for all graduates in 2010 as $54,796.  However, plaintiffs alleged that their actual employment prospects were quite different; most had difficulty finding full-time paying jobs as lawyers.  They weren’t alone; twice as many people passed the bar as there were job openings.  Plaintiffs alleged that Cooley violated Michigan’s Consumer Protection Act and engaged in common-law fraud/negligent misrepresentation.

The court of appeals first agreed that the CPA didn’t apply to the purchase of legal education to obtain employment.  The CPA doesn’t cover purchases for business or commercial purposes.  The Michigan Supreme Court has held that obtaining medical records for litigation purposes isn’t “primarily for personal, family, or household use,” as required by the CPA. Slobin v. Henry Ford Health Care, 666 N.W.2d 632 (Mich. 2003) (per curiam). So too here, as the complaint alleged that the graduates attended law school in order to obtain full-time legal employment.

The court of appeals turned to the fraudulent misrepresentation claim, starting with the percentage of graduates employed statistic (76% in 2010). Plaintiffs alleged that a reasonable consumer would interpret this as full-time, permanent JD-required or –preferred jobs.  But in fact the statistics included any type of employment, including working as a barista at Starbucks (“business”).  The court of appeals agreed with the district court that the percentage employed statistic was literally true, and that reliance on the statistic to include only full-time, permanent legal jobs was unreasonable.  A subjective misunderstanding of information that isn’t objectively false or misleading doesn’t establish fraudulent misrepresentation.  Plaintiffs argued that this was a factual issue unsuited for a motion to dismiss, but reliance can be unreasonable as a matter of law based on a complaint’s allegations.  Here, the reliance on the statistic to mean “employed in full-time legal positions” wasn’t reasonable because, as the district court wrote, “basic deductive reasoning informs a reasonable person that the employment statistic includes all employed graduates, not just those who obtained or started full-time legal positions.”

Separately, there could be no claim based on the average starting salary statistic because plaintiffs’ reliance on it was unreasonable.  On its face, the phrase “average starting salary for all graduates” (reported as $54,796 in 2010) means just that—all graduates, not just those who responded to the survey.  The title of the document, “Employment Report and Salary Survey,” though, shows that the statistic wasn’t based on the total number of graduates but rather the graduates with known employment status who chose to include salary information.  Thus, this statement was objectively untrue. 

But reliance on it was still unreasonable because another of Cooley’s statements directly contradicted it, just as it’s unreasonable to rely on an oral statement contradicting a contract term when the contract has an integration clause.  (This is why consumer protection statutes needed to change the common law in this respect: it’s ordinary human behavior to believe the human being in front of you, telling you to ignore what the contract says.)  Here, the “all graduates” statement was expressly contradicted by other statements in the same report showing that it was based on data from those who completed the surveys—“[n]umber of graduates with employment status known” was less than the total number of graduates, and the very title of the report showed that it was a survey.

The fraudulent concealment claim also failed.  Plaintiffs alleged that Cooley failed to disclose material facts related to its statistics: e.g., what percentage of graduates were employed in either part-time or temporary positions, or whether the jobs required law degrees. But fraudulent concealment requires more than nondisclosure; it requires a legal duty to disclose. This is most common when the plaintiff asks questions and the defendant’s responses are truthful in themselves but incomplete and omit material information.  But the plaintiffs didn’t allege that they ever asked Cooley about these claims or requested additional information.

As for negligent misrepresentation, plaintiffs failed to allege justifiable or reasonable reliance.

Cooley’s cross-appeal, which raised various procedural/preemption issues, was also rejected.

I sense a disturbance in the Force

Would you want this firm doing your ads? Depends on your risk tolerance, I suppose!  Via Zachary Schrag, who also proposed the caption "I've got a bad feeling about this."

Claim against Hotwire for underestimating rental costs moves forward

Shahar v. Hotwire, Inc., 2013 WL 3877785 (N.D. Cal. July 25, 2013)

Shahar brought the usual California claims, plus breach of contract, alleging that Hotwire falsely or misleadingly stated the price for car rentals abroad. Shahar used Hotwire to rent a car in Israel. His contract allegedly set out a daily rental rate ($14), a rental term (5 days), a list of the estimated taxes and fees ($0), and an estimated trip total amount ($70), but when he picked up the car, the rental agency required him to pay an additional $60.00 for mandatory third-party liability insurance and $20.82 in taxes.

The court found that Shahar had standing to assert claims arising from car rentals in countries other than Israel. Plaintiffs can assert claims based on unpurchased products if there are substantial similarities in the accused products and similar underlying misrepresentations. Here, Shahar alleged that Hotwire intentionally omitted taxes and fees it knew its clients would have to pay. “The statements, regardless of the country or the car rented, are the same. There is no distinction between the service Sharhar was allegedly deceived into buying and the service purchased by others; the statements at issue all concern the estimation of foreign taxes and fees, were conveyed through the same website, and resulted in consumers purchasing the same underlying service regardless of where the cars were ultimately driven.”

The court also found that Shahar stated a claim for breach of contract, and for violations of the consumer protection statutes. Hotwire argued that no reasonable consumer would believe that Hotwire’s estimated price guaranteed the actual price.  “Depending upon specific context, an estimate may be a term of an enforceable contract. The term estimate is not conclusive of the legal effect of a communication; rather, the effect depends on context.”  Here, Shahar alleged that Hotwire calculated the total estimated price based on its exclusive and superior knowledge of the base rental rate, taxes, and fees. On the pleadings, this tended to show that Hotwire knew or had reason to know that Shahar would have to pay more, at a minimum, more than $0.  Hotwire’s allegedly intentional omission lured reasonable consumers with favorable, inaccurate terms.  This sufficiently stated a claim. 

Ford v. Hotwire, Inc., 2007 WL 6235779 (S.D. Cal. Nov. 19, 2007), held that there could be no claim based on allegations that Hotwire improperly failed to include, and therefore misrepresented, special fees in hotel rates charged directly by the hotels.  There, Hotwire’s contract “expressly states that its quoted rate does not include certain charges, such as resort fees, that a hotel may impose directly,” and the amount and mandatory nature of those special fees was readily available public information. Thus, in that case, the court found that no reasonable consumer could have been deceived.

Here, however, Shahar didn’t concede that the information on local taxes and fees was publicly available or that the contract expressly stated that fees were omitted.  The parties disputed the specific contract terms and the evidence that might provide context to those terms. Thus, the case would continue.